I read an upbeta comment about SAA in the local press the other day. Billions in losses has turned into some 80 mill in profit.
Well here´s some desturbing news from our friends over at IAG
"Africa’s biggest airline has undertaken yet another odd decision. It
grounded its 744 fleet with no apparent capacity replacement. Now there
is news of a sale and lease back of two of its A346s. In Parliament,
South Africa’s Public Enterprise Minister responded to this news by
saying "Mitigation of the residual value risk in this aircraft type
specifically and to wide-body aircraft in general, reducing currency
risk by replacing US dollar debt with a rand lease structure…"
South Africa is an a insignificant resource exporter. It is the world’s
largest supplier of gold – something people want these days more than
dollars, as the price now hovers around levels last seen when the
Russians invaded Afghanistan. You would think therefore the South
African currency would be strong and likely to remain so for quite a
Yet the minister’s response tells you what SAA wanted
everyone to hear. First the A346 has a residual value risk (no surprise
to you, right?) and that widebody planes are risky (only the Airbus 340
series, not the 777 for example) which is a statement clearly harking
back to the now parked 744s. The truth is more likely that the A346s
are new and therefore have the highest asset value worth selling.
mentioning currency risk the airline is saying that it does not believe
the US dollar will remain weak. If it did, then the carrying costs
would decline as the dollar weakens further. Therefore what seems to be
really going on is that the airline is running out of money. Also no
shock to regular readers. By selling these planes the airline’s cash
position is boosted. It appears th sale and leaseback may have been
done through a local bank because the lease is now charged in local
currency. That supports our view that the bank involved sees the dollar
in long term decline and therefore is not a currency risk.
summary what we really have here is financial juggling to hide the
operational abashment that is the new normal in South Africa."